OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has upgraded the Long-Term Issuer Credit Rating to “bb+” from “bb” and affirmed the Financial Strength Rating of B (Fair) of Discovery Insurance Company (Discovery) (Kinston, NC). The outlook for these Credit Ratings (ratings) remains stable.
The ratings reflect Discovery’s balance sheet strength, which A.M. Best categorizes as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).
These rating actions are reflective of Discovery’s recent operating performance results, which have contributed to surplus growth in three of the past five years. Operating income has been derived from significant fee income and to a lesser extent net investment income, partially offset by negative underwriting results, albeit much improved in the current period. In 2016 and 2017, double-digit growth in net premiums written was attributed to targeted rate adjustments combined with increased policies in force that stemmed from the consolidation of competitors in North Carolina.
These positive rating factors are offset partially by elevated net premium written and common stock leverage ratios, and heavy reinsurance dependence as measured by ceded leverage measures that are well in excess of the private passenger nonstandard automobile composite. Discovery’s business model includes ceding 100% of its auto liability premiums and losses (excluding ULAE) to the North Carolina Reinsurance Facility.
Discovery’s business profile is limited as reflected by its product and geographic concentration as a provider of nonstandard private passenger automobile liability and physical damage insurance operating exclusively in North Carolina. The company’s ERM framework is emerging with improvements in both reporting and auditing functions implemented in recent years.
The stable outlooks are based on A.M. Best’s expectation of operating performance remaining in line with the composite while maintaining adequate balance sheet strength despite near-term planned growth initiatives.
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